Some federal contractors soon can get nearly $1 million a year

Joe Davidson
Columnist May 30, 2013

Uncle Sam will soon pay individual private contractors almost $1 million a year, more than twice President Obama’s salary.

Makes “nice work if you can get it” a weak understatement.

Joe Davidson writes the Federal Diary, a column about the federal workplace that celebrated its 80th birthday in November 2012. View Archive

Sam doesn’t want to be such a spendthrift, but he can’t control himself. The payments are required by law. The Obama administration is asking Congress to change that, but it’s already too late to lower the current federal cap on payments for work done in the past fiscal year.

So, while federal employees are in the third year of a basic pay rate freeze and many are suffering a reduction in wages through budget cutting and unpaid furlough days, thousands of individual federal contractors will get more than $950,000 each for fiscal 2012.

“This wasteful expenditure of taxpayer dollars must stop,” Joe Jordan, the administrator for federal procurement policy in the Office of Management and Budget, told reporters Thursday.

No one likes to waste tax dollars, but where interested parties stand on this proposal depends on whom they represent. The trade association representing contractors thinks it cuts too much, the largest federal employee union says it doesn’t cut enough.

For Sen. Joe Manchin III (D-W.Va.) it’s just right, especially since the administration’s proposal for agencies government-wide tracks with his for the Defense Department.

“It’s time we get contractors’ salaries back in line with what we pay our courageous service men and women,” he said. “It is outrageous that we pay some corporate contractors nearly four times as much as the secretary of defense. I’m pleased to see the administration supportive of the amendment that I proposed in last year’s defense bill that will rein in excessive contractor spending while keeping the most powerful military in the world.”

The cap is on the amount the federal government is allowed to reimburse contractors for the compensation they provide employees and is set by a formula based on the annual compensation of top private sector executives. The federal cap does not prevent companies from paying their executives more from their own funds.

Obama has repeatedly called for changes to the formula and next week the administration will send Congress legislation designed “to stop the excessive payments,” Jordan said.

“The administration’s legislative proposal calls on Congress to abolish the current formula and instead tie the reimbursement cap to the president’s salary and apply it across the board to all defense and civilian cost-reimbursement contracts,” Jordan said. “Tying the cap to the president’s salary will provide a reasonable level of compensation for high-value federal contractors while ensuring taxpayers are not saddled with paying excessive compensation costs.”

Presidential pay is $400,000 annually. Under the proposal, that would be the cap, which would rise with the president’s pay.

The cap was first imposed in the mid-1990s and has taken off from the original $250,000. By the time payments are made for 2012, the cap will have jumped 300 percent, “far outpacing,” Jordan noted, “the growth of inflation and the wages of most of America’s working families.”

For America’s federal families, that would be their frozen wages.

“We really need to stop this,” Jordan said.

The OMB would not reveal which companies pay their execs at the maximum amount. He did say the administration’s proposal allows for an exemption to the cap if agency officials determine that higher pay is necessary to get specialized talent, such as certain scientists and engineers.

Stan Soloway, president of the Professional Services Council representing contractors, said he is willing to freeze the cap at its current level of $763,000, “while a careful analysis is done to assess how best to set it in the future.”

But limiting the federal reimbursement to the president’s pay, he said, is “disingenuous.”

“The president’s salary has no relationship to what high quality executive talent commands in the real world; and that’s the marketplace the companies have to operate in,” he added by e-mail. The proposal, he said, would hit all high-paid contractor employees, not just executives. Companies will not pay excessively for talent, according to Soloway, “since doing so would render them noncompetitive.”

For American Federation of Government Employees President J. David Cox Sr., linking contractor reimbursement to the president’s pay is much too generous.

“The administration’s proposal is completely inadequate,” he said. “It still requires taxpayers to reimburse contractors for exorbitant sums, while federal employees are suffering pay freezes and cuts due to furloughs.”

“Federal employees have had their pay frozen for three straight years, and more than 800,000 employees are being furloughed without pay for up to 11 days this year under sequestration,” added Cox. “And the best the administration can do [is] impose this small change that will affect less than half of all service contracts.”

Twitter: @JoeDavidsonWP

Previous columns by Joe Davidson are available at wapo.st/JoeDavidson.

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